New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Kathmandu (KMD) Trading update initial impressions — Sales in line, positive outlook comments</h2>
Kathmandu’s (KMD) trading update is in line with our expectations, with positive outlook comments providing confidence in 2H21. KMD has provided 1H21 EBITDA (pre-IFR-16) guidance of NZ$47m to NZ$49m, which we estimate represents a range of NZ$79m to NZ$81m on a post IFRS-16 basis, in line with our current forecast of N$79m.
The balance sheet is in good shape, 1H21 net debt of c. NZ$7m, with KMD managing working capital well. Inventory levels remain tight but at comfortable levels.
Outlook and our view — OUTPERFORM
Today’s trading update contained more positives than negatives, with the seasonally important Rip Curl delivering strong sales growth, offsetting weakness at Kathmandu. We view KMD as well positioned to deliver a strong 2H21. While borders remain closed and house prices are supportive, we expect to see a continuation of consumer activity in Australasia, suggesting a strong sales outlook into 2H21 for the Kathmandu brand. In addition, Rip Curl and Oboz wholesale orders are ahead of pre-COVID-19 levels, with scope for further support from vaccine rollouts lifting Northern Hemisphere consumer mobility/activity.
We retain our positive view on KMD. OUTPERFORM, target price NZ$1.65.
Divisional detail
1H21 group direct to consumer (DTC) same store sales (SSS) fell -10.3%, with wholesale orders down -11.5%. An improvement on 1Q21 sales announced in November (group down -24%). Although headline sales were in line, brand mix favoured Rip Curl relative to our expectations.
<ul>
<li>Rip Curl DTC SSS up +21.0% — A strong trading result, benefitting from category exposure and consumer momentum with DTC sales weighted towards the Southern Hemisphere. The wholesale business (Northern Hemisphere weighted) appears well positioned heading into 2H21, with orders ahead of pre-COVID-19 levels. Vaccine roll out and the seasonal shift should be positive for consumer momentum supporting further sales growth.</li>
<li>Kathmandu DTC SSS fell -35.4% — Weak 1H21 sales were expected given the exposure to international travel related products such as insulation and rainwear, which heavily weighed on sales. Summer categories performed well, however the brand is weighted to the winter season (1H/2H profitability split c. 25%/75%).</li>
<li>Online DTC sales penetration for the half is 13% (1H20 8%).</li>
</ul>
Guy Hooper&nbsp; Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1691442258297089342&amp;th=177935c5b3e1ed3e&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ81w2vS3MP9134_eV8u4D3bRypGTrc0A7o8GZ94MsdUHv0NysqXXRbWYr8M77igDnums9iysUlxYqE18-LhXoQC1EuUCYzXw3eY7nANzhsGdI_P1rh9yITsB1E&amp;disp=emb" class="editor-image img-responsive"></figure>
 P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Kathmandu (KMD) Trading update initial impressions — Sales in line, positive outlook comments
Kathmandu’s (KMD) trading update is in line with our expectations, with positive outlook comments providing confidence in 2H21. KMD has provided 1H21 EBITDA (pre-IFR-16) guidance of NZ$47m to NZ$49m, which we estimate represents a range of NZ$79m to NZ$81m on a post IFRS-16 basis, in line with our current forecast of N$79m.
The balance sheet is in good shape, 1H21 net debt of c. NZ$7m, with KMD managing working capital well. Inventory levels remain tight but at comfortable levels.
Outlook and our view — OUTPERFORM
Today’s trading update contained more positives than negatives, with the seasonally important Rip Curl delivering strong sales growth, offsetting weakness at Kathmandu. We view KMD as well positioned to deliver a strong 2H21. While borders remain closed and house prices are supportive, we expect to see a continuation of consumer activity in Australasia, suggesting a strong sales outlook into 2H21 for the Kathmandu brand. In addition, Rip Curl and Oboz wholesale orders are ahead of pre-COVID-19 levels, with scope for further support from vaccine rollouts lifting Northern Hemisphere consumer mobility/activity.
We retain our positive view on KMD. OUTPERFORM, target price NZ$1.65.
Divisional detail
1H21 group direct to consumer (DTC) same store sales (SSS) fell -10.3%, with wholesale orders down -11.5%. An improvement on 1Q21 sales announced in November (group down -24%). Although headline sales were in line, brand mix favoured Rip Curl relative to our expectations.

Rip Curl DTC SSS up +21.0% — A strong trading result, benefitting from category exposure and consumer momentum with DTC sales weighted towards the Southern Hemisphere. The wholesale business (Northern Hemisphere weighted) appears well positioned heading into 2H21, with orders ahead of pre-COVID-19 levels. Vaccine roll out and the seasonal shift should be positive for consumer momentum supporting further sales growth.
Kathmandu DTC SSS fell -35.4% — Weak 1H21 sales were expected given the exposure to international travel related products such as insulation and rainwear, which heavily weighed on sales. Summer categories performed well, however the brand is weighted to the winter season (1H/2H profitability split c. 25%/75%).
Online DTC sales penetration for the half is 13% (1H20 8%).

Guy Hooper&nbsp; Analyst, Equities

 P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Kathmandu (KMD): Trading Update Initial Impressions — Sales in Line, Positive Outlook Comments

Kathmandu Holdings

Kathmandu (KMD): Trading Update Initial Impressions — Sales in Line, Positive Outlook Comments